5 Common Tax Myths, Debunked
“Taxes” isn’t a 4-letter word, but it might as well be. Yes, it happens every year, but every year seems to feel more confusing and complicated. You’d think we would “know better” as we do our taxes more often, right? Stop breaking out into hives one of these days? Well, chances are, won’t ever feel jazzed to jump into bed with your taxes. So, here’s the truth about tax myths you could have sworn you knew the answer to last year, but either forgot or blocked it out of your memory.
- If you file an extension, you’re more likely to get audited. FALSE! Studies have never found any correlation between extending the deadline for filing and getting audited. You’re also not going to get audited for filing early; that’s also a myth. There’s simply no “Eager Beaver” penalty! Keep in mind that fewer than 1% of tax returns were audited for incomes under $200,000 last year, according to IRS data. So the real deal is that being audited is extremely unlikely no matter when you file.
- You can claim pets as dependents. NOPE! You cannot claim your pet as a dependent, no matter how much they might be part of your family. However, you can write off expenses related to your pet’s care if those expenses are directly related to your business, as in the case of a guard dog, or if you need a dog for medical reasons (like a seeing-eye dog). Otherwise, Fido gets no tax love.
- Claiming the “home office” deduction is an automatic audit. MYTH! Home offices have become increasingly prevalent and common enough that there’s no need to be afraid of claiming a legitimate deduction; simply claiming this deduction is not an automatic trigger for an IRS audit. Just make sure your claim falls within IRS rules, namely that you have meetings there and use it as your primary office.
- An extension to file means an extension to pay. HELL NO! This is super important. Filing an extension will give you extra time to file your return, but any amount you owe is still due by April 15. An extension can help you avoid the failure-to-file penalty, but any outstanding balance will be charged a failure-to-pay penalty at 0.5% per month and also earn interest on top of that.The failure-to-file penalty is only 0.05%, so it’s much more beneficial to at least pay on time and then file late if for whatever reason you have to. The longer you wait, the more you’re paying Uncle Sam, not less.
- Students do not have to file income tax returns. INCORRECTAMUNDO! Your status as a student does not exempt you from having to file income taxes. Whether or not you need to actually file a return is determined by the amount of income you earned last year. For 2014, if you earned at least $10,150 you must file an income tax return, even if you were a full-time student for the entire year. However, even if you earned less than that, you should still file taxes because in the likely event you had federal taxes withheld from your paycheck you may receive a tax refund. You may also be eligible for an education credit like the American Opportunity Tax Credit, so don’t miss out.